FOMC Holds Funds Rate at 1%; CPI Below Expectations

Jan 13, 2005

ByJohn S. McClenahen To no one's surprise, Chairman Alan Greenspan and his 11 colleagues of the Federal Open Market Committee (FOMC) on Sept. 16 left the target for the influential federal funds rate at 1%, the level at which it's been since June 25. The panel continues to be more likely to cut short-term interest rates further than to raise them. "The probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level," the FOMC said. Indeed, inflation at the consumer level seems not to be a threat to the U.S. recovery from the 2001 recession. Even with energy costs registering their largest monthly advance since this past March, the U.S. Labor Department's Consumer Price Index (CPI) rose just a modest 0.3% in August, below economists' expectations of a 0.4% increase. And the so-called core-CPI, which excludes often-volatile changes in the prices of food and fuel, rose only 0.1% in August, less than the 0.2% rise that economists generally expected.